Mortgage Activity in First Week of 2012: Guarded Optimism?

The new year might be bringing in fresh optimism for the housing market. Results are in from the Mortgage Bankers Association’s Weekly Applications Survey, which imply a modest pickup in applications and sales.

Seasonally adjusted for the New Year’s Day holiday, the four week moving average for mortgage applications and purchases is down 1.92 percent, but the bright spot is that for the first week of January that trend reverses. Mortgage applications increased by 4.5 percent and purchases by 8.1 percent, implying that home purchasers were waiting for January to act. Possible reasons are uncertainty regarding possible tax increases for 2012, intentions to put home purchases in the new tax year, and preoccupation with holiday activities. Weather conditions can affect mortgage activity levels but for this week that would not pertain, as there were no significantly adverse conditions as a whole.

Other Survey items tend to confirm the above implications: refinance activity in the first week was down about 1 percent, and adjustable rates were up to 5.4 percent from 4.7 percent the week before. The former can be interpreted as less concern among home owners over their ongoing interest rates, and the latter as less fear of volatility in the mortgage market, in that buyers were willing to accept loans on that condition.

Other rate changes involved long and short term fixed-rate mortgages. 30-year loans with conforming balances ($417,500 or less) had contract rates increasing from 4.07 percent to 4.11 percent, with points decreasing, while rates for jumbo loan balances ($417.500 or more) saw the opposite change. This could indicate that those buyers with lower incomes are less wary of long run adverse economic conditions, assuming there was no institutional need for rate hikes.15-year fixed rate loans showed the same rate increase, but FHA backed mortgages saw their rates unchanged.

This week’s numbers could be only a spike, but if this trend continues into the rest of January and farther, it could imply higher confidence in the economy, as homes are usually the largest expenditures in most people’s lifetimes. That makes these statistics into a highly accurate economic barometer, and one well worth watching.